The words "so far as the contrary is shown" in R. 5 of Sch. II of the Excess Profits Tax Act, 1940, apply to both cls. (a) and (b), and it is open to either side to rebut the artificial presumptions created by that Rule by showing that either clause does not represent the true facts.

Judgment

BOSE, J.

( 1 ) THIS appeal comes from Bombay. It raises two questions under the Excess Profits Tax Act. 1940. The first concerns R. 5 of Sch. II of the Act and the other raises a question about the managing agency commission due to the managing agents of the assessee company.

( 2 ) THE assessee is the Shri Ram Mills Limited of Bombay. The assessment year is 1945-46 and the accounting year, the calendar year 1944. The Income-tax Officer assessed the profits for income-tax at Rs. 46,18,384 and that is not questioned.

( 3 ) THE Excess Profits Tax Officer computed the profits, for Excess Profits Tax purposes at Rs. 46,94,304. In reaching this figure be excluded certain items in the return for determining how the profits increased the capital; for example, he excluded moneys given away as presents and in charity etc.

( 4 ) NOW in order to determine the quantum of excess profits tax payable by an assessee it is necessary under the Act to compute, among other things, the average amount of capital employed by the business during a certain period. This under S. 2 (3), has to be the average amount of capital "as computed in accordance with the second Schedule. " That brings in the disputed rule, Rule No. 5 in Sch. II. It runs as follows :"for the purpose of ascertaining the average amount of capital employed in a business during any period, the profits or losses made in that period shall, except so far as the contrary is shown, be deemed- (A) to have accrued at an even rate throughout the period; and (B) to have resulted, as they accrued, in a corresponding increase or decrease, as the case may be, in the capital employed in the business. "

( 5 ) THE dispute centres round the words we have underlined. The learned counsel for the assessee contends that the words only govern cl. (a) and not cl. (b ). The department has accepted in this case that the profits accrued at an even rate because the assessee has not rebutted that presumption nor has the department to do so. The learned counsel for the assessee contends that that being so, the department is bound to apply cl. (b) because the words we have underlined only govern cl, (a) and not cl. (b ). His contention is that R. 5 is an artificial rule which creates a fiction, namely that the profits accrue evenly over the year ever when that is not the fact. THEREFORE the moment either party shows that this is not the case R. 5 falls to the ground as a whole because the artificial presumption it created has been rebutted. Clause (b), he contends, cannot have any independent existence because it is a mere corollary to cl. (a ). In the same way, he says, if cl. (a) is accepted, then cl. (b) lives also, and as cl. (a) has been accepted here cl. (b) must also be applied without anything more.

( 6 ) WE do not agree. The word "deemed clearly governs both clauses for the fiction which the Rule creates is not only that the profits shall be deemed to have accrued at an even rate throughout the period, but further that they must be deemed to have resulted as they accrued, in a corresponding increase or decrease in the capital. In the same way, the words "except so far as the contrary is shown" govern both clauses and it is open to either side to rebut the artificial presumptions created by that Rule by showing that either clause does not represent the true facts. THUS, it can be shown either that the profits did not accrue at an even rate throughout the period or that the profits did not actually go to increase the capital, as for example when it was taken out of the business and handed over to charities and so forth, and if only one of the two presumptions is rebutted, the other stands.

( 7 ) THE High Court resettled the first question we are asked to answer as follows :"whether on a true construction of, R. 5 or Sch. II Excess Profits Tax Act the expression so far as the contrary is shown applies only to sub-cl. (a) or also to sub-cl. (b)?"we agree with the answer given by the High Court, namely t